Release Equity to Pay off Debt

This guide explains the costs and risks of using property equity to repay debt and the alternatives to discuss with a free debt adviser.

In this article, we’ll explain:

• What equity release is.
• How it could help you pay off debt.
• Who can use equity release schemes.
• How to get a good quote.
• And the key things to think about before you start.

We know that equity release might sound tricky. Maybe you’re worried about the risk to your home or not sure if it’s the right choice for you. We’re here to make things clear. With our guide, you can understand how equity release works and make the right decision for your future.

We’re here to support you every step of the way. So, let’s get started and explore how you can use equity release to pay off your debts.

Can you release equity to pay off debt?

You can release equity to pay off debt. If you have outstanding debts in later life, releasing equity and then using the money to pay off your creditors is possible. 

A lifetime mortgage replaces debts with borrowing secured on the home; payment requirements vary. Home reversion instead sells ownership. Neither automatically saves money or removes financial risk.

Can I borrow more on my mortgage to pay off debt?

It also might be possible for borrowers to borrow more on their mortgage to pay off debt. Although you secure a bigger mortgage against your home equity, this isn’t exactly the same as equity release. Monthly payments on the new mortgage will be due immediately after it is taken out. 

A remortgage with additional borrowing may provide funds to repay other debts, subject to approval. Compare the total cost over the full term rather than adding or comparing headline interest rates alone.

But you should also take note of additional fees, which could make this method of debt consolidation more expensive, such as early repayment fees on the original mortgage and the debts. Everything needs to be considered before making a move. 

Is remortgaging to pay off debt a good idea?

Consolidation may simplify payments, but fees and a longer term can increase total interest. Securing previously unsecured debts on your home creates a repossession risk.

A lower rate alone does not make remortgaging worthwhile. Assess the full cost, term, affordability and risk with advice before proceeding.

It’s worthwhile doing research into the other methods of debt consolidation, as these could offer even better repayment terms. 

Alternative ways to pay off debts

We have covered how you could release equity to pay off debt, and how you can borrow more on your mortgage to do the same. But are there any other ways to pay off your debt? Yes – and we’ll explain some of the most common here:

1. Debt consolidation loans

Debt consolidation loans are a type of personal loan that must be used to pay off other debts. They may be unsecured or secured by one of the debtor’s assets – and they are sometimes still available to people with bad credit. They can be found at high-street banks, building societies and through online loan providers. 

2. Credit card balance transfer

A balance transfer may offer a promotional rate, subject to eligibility, credit limit, fees and expiry. Some have no transfer fee; none guarantees savings if the balance is not managed under the terms. See related guidance.

3. Debt solutions

A free debt adviser can compare suitable informal and formal solutions. A DRO is not available to homeowners in England and Wales; other options and regional rules need individual assessment.

Is equity release a bad idea?

Equity release can be a good and bad idea. To determine if it is a good idea for you, you’ll need to consider the specifics of the plans available against personal circumstances. 

For example, someone without children may feel that equity release is a better idea for them compared to someone with children who they know are relying on an inheritance to make life more comfortable. 

Having or not having children is by no means the only thing that decides if equity release is a good or bad idea. This is just one example.